Brown Backstops Versus the Green Paradox

Mar 2013 | 108

Authors: Thomas Michielsen

Anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally (the green paradox). This mechanism relies crucially on the exhaustibility of fossil fuels. We analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels: one scarce and dirty (e.g. oil), the other abundant and dirtier (e.g. coal). We derive conditions for a ’green orthodox’: anticipated climate policies may reduce current emissions. Calibrations suggest that intertemporal carbon leakage (from -22% to 13%) is a relatively minor concern.

Keywords: carbon tax, green paradox, exhaustible resource, backstop, climate change

View All Working Papers